Social Innovations

Block by Block

By any measure, the living room and upstairs
bedrooms of Fernando Salazar Nunez’s dream
home about 30 miles west of Mexico City will have
a world-class view once he’s done building them.
Visible in the distance, dead center through what
will be large picture windows, is the snowcapped
Nevada de Toluca, a dormant volcano rising above
a wide skirt of deep-green pine forest.

In the United States, a view like this is normally
reserved for the wealthy from their million-dollar
homes. But in Mexico, the rich generally shun the
countryside, and rural homesteads are usually
simple structures of rebar and cinder blocks. True
to form, Salazar’s three-bedroom, 1.5-bath home
comes with a modest price tag around $40,000, land
and view included.

The 62-year-old Salazar, a father of 10 and
grandfather to 20, has never earned more than a
humble income squeezed from farming and sporadic
work maintaining tortilla-making machinery.
So how could he afford such a home?

It took an unprecedented admission by Cemex,
the world’s second-largest cement maker and one
of Mexico’s largest companies, to make Salazar’s
dreams come true. In the mid-1990s Cemex was
suffering along with most other Mexican companies
from a devastating currency devaluation that
eliminated more than 1 million Mexican jobs,
and cut the buying power of the Mexican peso
roughly in half.

Cemex issued a proclamation – its “Declaration
of Ignorance” – rare among Mexican firms and
unusual for publicly held firms anywhere: The
company basically said it had no idea how to reach
the millions of poor Mexicans who spend as much
as 10 years building the average four-room home
on their own and in fits and starts dependent on
irregular cash flows and lulls in spike-prone prices
for building materials.

The company set out to study the “auto-construccion”
market – the do-it-yourself home building
business that dominates Mexico’s transitional
countryside, where farming no longer yields even
subsistence incomes, and in the ad hoc neighborhoods
that seem to pop up almost overnight on the
fringes of Mexico’s cities. The company put its faith
in Hector Ureta, an urban planner by training
who believed the company had to radically alter
its business model to achieve new sales in marginal
neighborhoods.

Under Ureta’s leadership, Cemex found out
more than it bargained for – almost by accident the
company appears to have shaped a global model for reaching
consumers and clients in previously ignored neighborhoods in
the underdeveloped nations around the world.

As a result, other companies, including Cemex’s building
materials competitors, are planning their own versions of the
company’s Patrimonio Hoy – Personal Property Today – which
combines aspects of microlending and community moneypooling
– to help low-income Mexicans build homes faster and
better. And since Cemex makes its building materials easier to
buy, the company is moving its products in a market segment
it once believed was impenetrable and not potentially profitable
enough to pursue.

Here’s How Patrimonio Hoy Works:

Would-be homebuilders pay about $14 a week, for 70 weeks.
What the roughly $1,000 buys is consultations and inspections
by Cemex staff architects, and scheduled deliveries of
materials divided into building phases that cover the 70 weeks.
All building materials, purchased with the Cemex advisers and
using the company’s considerable buying power, are kept at stable
prices through the life of the construction project, shielding
Cemex’s “partners” from
sudden price hikes and supply
shortages common on the open
market. And, if partners run
into shallow employment periods,
they can bank their materials
for a while. Partners found
they were building homes faster,
and generally cheaper, than they
could on their own.

“An architect wanted to
charge me $100 for just the initial
visit, and about $500 more
for his services. So just the free
architectural service was
enough to draw me into
becoming a partner,” said
Lorenza Calixtro Miranda, an
unassuming mother of four who is now recognized as the
most successful promotora – recruiter – in the Cemex family.
Underneath Calixtro’s shy exterior is a natural-born saleswoman.
Her day job is selling bread and vegetables home by
home in communities at the base of Nevada de Toluca. All
she seems to need is friendly reception for her thoughts and
her soft – yet persistent – sales personality is turned on. Calixtro
has convinced at least 1,000 families in and around
Toluca to become partners.

Cemex pays recruiters to show their neighbors how Patrimonio
Hoy works. “When they see how fast their neighbors are
building, and how nice the homes look, they want to join,” Calixtro
said. “And we make a show of delivering the materials to
the home sites. The trucks roll into the neighborhood, we decorate
them with symbols and advertisements for Patrimonio Hoy,
which then calls out the neighbors who want to see what the
fuss is all about.”

Cemex is basically putting building materials in customers’
hands, on terms tailored to the way they work and build. In
return, the company saw its low-income partners bust a stereotype
of the irresponsible poor: 99.2 percent of the $42 million
worth of materials that Cemex has distributed is being paid for
on time, according to the company. And the bottom line is
that since its inception, Patrimonio Hoy has sponsored the building
of 10,000 homes in Mexico. A similar project was launched
this spring in Colombia.

“That’s all about the tons of cement that our doubters kept
asking if we were moving, back when we were actually selling
nothing and just studying the market,” Ureta said. “We convinced
them that if we changed our attitudes, unlearned our
perceptions, and opened ourselves to learning how our customers
lived and worked, we could build a whole new business
model and carve out a market where it was thought there was
no business for us.”

Businesses following Cemex’s example include Banco Azteca,
a subsidiary of the Salinas Pliego group of companies that
includes the Azteca broadcast network and Elektra, Mexico’s
busiest electronics discounter. Banco Azteca is Mexico’s fastest-growing
bank, precisely because it has identified low-income
clients traditionally shunned by Mexican bankers as its core market.
The bank’s executives studied the way small businesses were
started and how money was lent and repaid in marginal neighborhoods;
its executives cite “The Fortune at the Bottom of the
Pyramid,” by University of Michigan professor C.K. Prahalad,
among the intellectual inspiration for its home-mortgage business
and a new line of small-business financing.

But it is Cemex’s experience – the way the construction giant
established a profitable foothold in Mexico’s insulated poor
neighborhoods – that serves as the real-world model for service-oriented
companies and foundations.

Cemex used a grassroots approach. For months it studied
communities firsthand, almost anonymously. This yielded
priceless data on how and why people of little means built
homes the way they did. None of this was easy. It took unusual
patience from upper management to allow the unconventional
market study to occur. Its authors had to push back against
almost daily calls from some company executives to end the
investigation, which was conducted much like an anthropological
field study.

The company’s chief executives held fast in its support,
however. They reasoned that the unusual times Cemex was living
through called for maverick business methods.

Ureta, Cemex’s director for new-market development, recognized
the market’s potential: As many as half of Mexico’s 110
million people live on less than $2 per day, according to the
United Nations. And, an estimated 30 percent of the nation’s
workforce is “informal,” i.e., on the so-called black market,
where no taxes are paid and receipts and pay stubs are nonexistent.
Yet despite the severe economic malaise of the ’90s, this
huge segment of the Mexican population continued to buy fired
mud bricks and iron rebar, and cement for its cinder blocks –
they just were not buying directly from Cemex.

“We had to leave the Cemex attitude behind. We dropped
the ego that would have us say ‘We’re from Cemex, and we’re
here to help,’” Ureta said, recalling how he assigned 10 professionals
– architects, salespeople, and construction experts – to
live in different poor neighborhoods for nearly a year. They were
ordered not to offer advice on home building, and not to jump
in when they saw construction techniques their college education
told them should never work. “It was not easy at first
because we were not seeing things through their point of view.
We were going in with our preconceived notions of how things
ought to be done. What we got was a sustainable, ethical business
that’s good for us and offers our customers a dignified way
to achieve the dream of having a home.”

Ureta saw that seemingly poor Mexicans were rich in guile
and had been trained to be cynical and untrusting by a parade
of politicians and dubious business pitchers. The politicians
routinely offered migrating poor families cheap or free plots of
raw land upon which to build, in exchange for ballot-box loyalty
and a commitment to show up whenever street protesters
or adoring crowds were needed for political purposes. Scammers
and Ponzi-scheme grifters often followed, and were gone in a
flash (with the money) once the con was uncovered.

Ureta’s team learned the ways of the tanda – a Mexican
money-pooling plan similar to informal, cooperative savings
plans in poor communities all over the developing world. The
Cemex people found that too often the tanda money, intended
for construction materials, went to other needs like the annual
neighborhood party or some common infrastructure project like
sewer lines or drinking water.

“The house building always had to wait,” said Salazar, who
took almost a decade to build his first project, a two-story
apartment building needed to accommodate a growing number
of his married children who needed their own places. In the
past, young and poor Mexican couples started wedded life living
in their parents’ home, then they built their own houses brick
by brick.

“Because of the program, my family now has three homes
under construction, including this one for my wife and me,”
Salazar said as he pointed out the volcanic view from a large
room that would serve as a dining room and sitting space. The
room was cool and clean, even without the tiled floor that’s to
come. “We would never have done it so fast, and because the
materials are more affordable, I’m building my home stronger
and better. I’ve put in a foundation and columns for a third floor.
Even if I don’t build the third floor, the two-level house will be
stronger than I imagined it could be.”

RICARDO SANDOVAL is a Mexico City-based writer who covers Latin
American business and crime for Knight Ridder newspapers and other
publications. He is currently writing a book about crime along the
U.S.-Mexico border. He can be contacted at rsandovalpalos@yahoo.com.

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